Thursday, March 13, 2014

My View

Regular readers know that I have railed against the impotent and partisan leadership that governs our country. The ineptitude of Washington and the elected officials and bureaucrats is breathtaking.

Part of the problem is that so many people in Washington that make decisions that have a financial impact on you and me and on our nation as a whole have no fundamental understanding of the basic economic and financial principles that guide our fiscal well being.

And for that reason, and to better equip us a voters and as citizens, we are going to dive into some of those principles and see how they affect you and me financially and have an impact on our daily lives.

Our economy, as measured by the Gross Domestic Product (GDP), which is the annual value of all the goods and services produced in the U.S., is driven by consumer spending. In fact, the most recent numbers show that 70% of our GDP is driven by what you and I do with our money. And over the years, our economy has been one that has shifted from making things (a manufacturing base economy) to one that is a consumption oriented (sales of services and goods) economy.

So it stands to reason that without consumption, our economy will suffer.

So for you and I to spend money, the first and obvious requirement is that we have a job. Without a job, there is no income and we do not consume, and the economy contracts.

And when the economy contracts, there are fewer jobs.

One can already see the downward spiral in which we find our country today.

Recently, the federal government and some economists have lauded the declining unemployment numbers, with stated unemployment now around 6%. These numbers belie the accounting gimmicks that have contributed to the falling unemployment number. For instance, if a worker that has been drawing unemployment benefits loses those benefits because they have expired, they are no longer unemployed for the purposes of tabulating those numbers. They still don't have a job, but the government no longer includes them in the count of those that are unemployed.

Nor does the government count those that are underemployed: those that have take a job for which they are overqualified in order to pay their bills; or those that have withdrawn from the job market altogether because they cannot find a job.

The real unemployment rate is currently around 11%.

The effect of that situation is that there is less money available for consumers to spend on the goods and services that help to move the economy forward.

The corollary to more people being out of work is that social benefits are increasing dramatically to provide unemployment benefits and other safety net social programs.

Where does the government get that money?

It is derived from the production (read: income) of workers through taxation.

Now consider the perfect storm we are facing in this country.

An historically high number of people out of work, needing social benefits. A growing number of citizens that are aging into the Social Security program and will be demanding payments from the program. A monetary policy that has added $4 trillion in new debt to our nation's balance sheet on which interest must be paid. A tax and regulatory environment that stymies the creation of new jobs and takes an inordinate amount of income away from those that have jobs. And overlay on all of this an economy that is struggling not only to produce jobs, but high quality jobs.

One can see the dilemma we face in this country. And frankly, it is beyond dilemma stage.

It is a looming catastrophe.

To avert this disaster will take real leadership that can make difficult decisions without partisan considerations. It will take men and women of vision and courage that will honestly deal with these problems without regard for their political careers. In a word...

It will take you and me holding those in Washington accountable for their actions and their spending because they have failed to do so up to now.

We can sit back and let our elected officials naval gaze in their enclosed and indulgent environment, or we can demand that effective changes be put in place to reverse the course upon which we find ourselves.